Income-tax Act

Background and evolution

Income tax was first introduced in India in 1860 by James Wilson to meet the costs of the 1857 revolt. After a series of temporary laws, the Indian Income-tax Act 1922 created a lasting system. Following the recommendations of the Law Commission and the Direct Taxes Administration Enquiry Committee, Parliament passed the Income-tax Act 1961, which came into force on 1 April 1962.

Over sixty years of Finance Acts made the 1961 Act long and complex, with thousands of amendments, many provisos and explanations. An attempt at overhaul, the Direct Taxes Code Bill (2010), lapsed. In 2025 the government introduced a new Income-tax Bill designed to simplify language and structure without major changes in tax policy; Parliament passed it in August 2025, with the new law to take effect from the 2026-27 tax year.

Key features and provisions

• Taxpayers: individuals, Hindu undivided families, firms, companies, cooperatives and other entities.
• Heads of income: salaries, house property, business or profession, capital gains, and income from other sources.
• Residence rules: residents are taxed on worldwide income; non-residents on income earned or received in India.
• Regimes: a new simplified tax regime with lower rates and fewer deductions became the default from 2023-24; the old regime with deductions remains optional.
• Corporate tax: cut in 2019 to 22% for existing companies (without exemptions) and 15% for new manufacturing companies.
• Administration: the Central Board of Direct Taxes (CBDT); faceless assessment and appeals introduced from 2020.
• Tax Deducted at Source (TDS) and advance tax for collection during the year.